Suppose a fall in stock prices makes people feel poorer.The decrease in wealth would induce people to
A)decrease consumption, shown as a movement to the left along a given aggregate demand curve.
B)increase consumption, shown as a movement to the right along a given aggregate demand curve.
C)decrease consumption, shifting the aggregate demand curve to the left.
D)increase consumption, shifting the aggregate demand curve to the right.

Question

Quizplus · Accepted Answer

A fall in stock prices will decrease people's wealth and therefore decrease their ability to spend, resulting in a decrease in consumption. This decrease in consumption would shift the entire aggregate demand curve to the left. So, the correct choice is C.

Suppose a Fall in Stock Prices Makes People Feel Poorer